Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

Taxes from A to Z: L Is For Levy

The IRS, like most creditors, wants to get paid. And if you owe money to the IRS, they’re going to do all they can to make sure that happens.

One of the ways that the IRS works to make sure they get paid is the use of a levy. A levy is a legal seizure of your property. It’s often confused with a lien but they are very different. A lien is filed against you to act as security; for example, an IRS lien will prevent you from selling a significant asset like your home and taking the proceeds without paying the IRS. In comparison, a levy is the actual taking the property from you to satisfy your tax obligations.

A levy is never a first step. The IRS gives you the opportunity to resolve your debt through a lump sum payment, an installment plan or other arrangement. If you receive a bill from the IRS and you ignore it or refuse to pay it, the IRS will eventually send you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice). In most cases, the notice will be sent via certified mail. It must be sent to you at least 30 days before the levy. You’ll have the right to appeal the levy during this time; your rights will be explained to you with the notice.

If you ignore the notice – or refuse to pay – the IRS can levy your assets in order to satisfy your debt.

The IRS can opt to levy your wages or federal payments. The IRS does this by notifying your payer (usually your employer or administrator of certain plans) of your tax debt; you’ll receive a copy of that letter. The IRS won’t take your entire check; there’s a formula used to determine how much they’ll seize based on the amount you owe and cost of living. The levy won’t be released until you pay the debt, the IRS collects the debt or the time for collections has ended. In other words, the IRS doesn’t have to continually renew the levy since it stays in place until the IRS releases it.

The IRS can also choose to levy your bank account. The IRS does this by sending your bank a letter advising of the levy; as with a levy of your wages, you’ll also receive a copy of that letter. The bank has a 21 day window to release your funds to the IRS after receipt of the levy notice. The IRS can take some or all of your accounts in order to satisfy your debt. This can, as you can imagine, result in some nastiness if you’ve written checks on the accounts or are planning on using funds inside those accounts to pay upcoming bills. Unlike a levy on your wages or federal payments, a levy on your bank account must be renewed. In other words, if you owe $10,000 and the IRS issues a levy on your account which holds $4,000, the IRS is only initially entitled to that $4,000. To try and collect the remaining $6,000, the IRS would have to issue another levy on your account.

In some extreme cases, the IRS can seize and sell your property. This includes real property, like a house, as well as a boat, automobile or business assets. I don’t use the term “extreme” lightly… Quite frankly, the IRS would rather have your check than your boat. But the right to levy your property can and does exist.

By law, some property cannot be levied. There are a number of procedural rules for levies related to timing and net asset value. There are also limitations on the kinds of assets that can be levied. The IRS may not, for example, levy school books; some types of clothing; unemployment benefits; some annuities and pensions; service-connected disability payments; workers compensation; salary, wages, or income included in a judgment for court-ordered child support payments, and some types of public assistance payments (this list isn’t meant to be exhaustive).

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